Bankruptcy Information
Bankruptcy Information
For most consumers, life before bankruptcy is fraught with financial difficulties. It is important to remember that although bankruptcy is not the first resort, it is best not to wait too long to take action. If you are facing what seems to be insurmountable debt, contact a chapter 7 attorney at once in order to make the best of a bad situation.
ABOUT THE BANKRUPTCY PROCESS
The bankruptcy laws are powerful tools that can be used to obtain debt relief.
At the Bankruptcy Law Offices of Stephen Johnson, we are experienced bankruptcy practitioners who work to obtain maximum debt relief for our clients while enabling them to retain as much property as possible.
Some general information about bankruptcy appears below. You probably have additional questions about what can be done to help you obtain debt relief.
In a free consultation, an attorney at our firm can review your situation and recommend the right solution for you.
At the Bankruptcy Law Offices of Stephen Johnson, we are experienced bankruptcy practitioners who work to obtain maximum debt relief for our clients while enabling them to retain as much property as possible.
Some general information about bankruptcy appears below. You probably have additional questions about what can be done to help you obtain debt relief.
In a free consultation, an attorney at our firm can review your situation and recommend the right solution for you.
CHAPTER 7 BANKRUPTCY - AN OVERVIEW
Both individuals and businesses may find themselves with more debts than they can pay when due. In such cases, filing for bankruptcy may provide a solution to what seems like an insurmountable problem. Bankruptcy provides two basic forms of relief: (1) liquidation and (2) rehabilitation, also known as reorganization. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. An attorney at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, servicing Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California can advise individuals and businesses about whether Chapter 7 is the right choice for them. The bankruptcy lawyer's goals are to help Chapter 7 debtors make a fresh start and ensure that creditors are paid.
Chapter 7 relief is available to both individuals and businesses
Chapter 7 bankruptcies, also called "straight bankruptcies," are the most common form chosen by individual consumers. In a Chapter 7 consumer bankruptcy, the individual debtor's estate is liquidated and the assets are distributed to creditors. Partnerships, sole proprietorships and corporations are also eligible to file under Chapter 7. However, unlike individuals, these business entities are not eligible to receive a discharge. 11 U.S.C. § 727(a)(1). Chapter 7 business liquidations are conducted in significantly the same manner as Chapter 7 consumer bankruptcies - many of the business's assets are sold and the proceeds are divided among the company's creditors. Partnerships or corporations that wish to keep doing business may decide that Chapter 7 is not the best option because after liquidation and distribution, the business ceases to exist.
Bankruptcy proceedings
A Chapter 7 case begins with the debtor's filing of the petition with the bankruptcy court, which triggers the automatic stay - bankruptcy terminology for the termination of all debt-collection activity. Filing a petition does not stay certain types of actions, and the stay may only be in place for a limited period of time. As long as the automatic stay is in place, creditors may not initiate or continue lawsuits against the debtor, garnish wages or call the debtor demanding payments.
The debtor must also file a schedule of assets and liabilities; a schedule of current income and expenditures; a statement of financial affairs; and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. There are additional filing requirements for individual debtors with primarily consumer debts. These debtors must file a certificate of credit counseling and a copy of any debt repayment plan; evidence of any payments from employers made 60 days before filing; a statement of monthly net income and any anticipated increases in income or expenses after filing; and a record of any interest the debtor has in state or federal qualified education or tuition accounts. 11 U.S.C. § 521.
The court appoints a trustee who oversees the Chapter 7 case and liquidates the debtor's assets in order to pay off the debts. In many cases, however, the debtor's assets are exempt or already subject to valid liens, so there will be no assets to liquidate. Most consumer bankruptcies are "no asset" cases in which there is nothing available for the creditors. The trustee can also try to recover money for the estate under the trustee's "avoiding powers." These powers include the power to set aside preferential transfers to creditors within 90 days of filing; undo security interests and pre-petition transfers that were not properly perfected; and pursue fraudulent conveyance and bulk transfer claims under state law. 11 U.S.C. § 544. If there are assets, the trustee collects the sale proceeds in a fund from which the debts are paid to the extent possible. Under § 726 of the Bankruptcy Code, property is distributed according to six classes of claims; each class must be paid in full before creditors in the next lower class are paid anything.
The trustee holds a meeting of creditors"within a reasonable time" after the debtor files the petition. 11 U.S.C. § 341(a). During this meeting, the trustee and creditors may ask the debtor, who is under oath, questions. The debtor must attend the meeting of creditors and answer questions about his or her property and financial matters. 11 U.S.C. § 343.
When a debtor wants to keep certain secured property (such as a car) after bankruptcy, he or she may choose to reaffirm the debt. In a reaffirmation agreement, the debtor and creditor agree that the debtor will pay all or part of an otherwise dischargeable debt after bankruptcy. The creditor promises that it will not repossess the property as long as the debtor continues to pay the debt. Reaffirmation agreements must be entered into before discharge is entered and they must be signed by the debtor and filed with the court. 11 U.S.C. § 524(c).
When all of the proceeds are distributed, most remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, such as student loans, damages resulting from the debtor's willful or malicious acts, debts incurred by giving false financial information, domestic support obligations and some debts incurred just prior to filing for bankruptcy, are non-dischargeable. 11 U.S.C. § 523. A court may deny a discharge if the debtor failed to keep or produce financial records; failed to satisfactorily explain any loss of assets; committed perjury; failed to follow an order of the court; fraudulently transferred or hid property; or failed to complete the required financial management course.
The debtor must also file a schedule of assets and liabilities; a schedule of current income and expenditures; a statement of financial affairs; and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. There are additional filing requirements for individual debtors with primarily consumer debts. These debtors must file a certificate of credit counseling and a copy of any debt repayment plan; evidence of any payments from employers made 60 days before filing; a statement of monthly net income and any anticipated increases in income or expenses after filing; and a record of any interest the debtor has in state or federal qualified education or tuition accounts. 11 U.S.C. § 521.
The court appoints a trustee who oversees the Chapter 7 case and liquidates the debtor's assets in order to pay off the debts. In many cases, however, the debtor's assets are exempt or already subject to valid liens, so there will be no assets to liquidate. Most consumer bankruptcies are "no asset" cases in which there is nothing available for the creditors. The trustee can also try to recover money for the estate under the trustee's "avoiding powers." These powers include the power to set aside preferential transfers to creditors within 90 days of filing; undo security interests and pre-petition transfers that were not properly perfected; and pursue fraudulent conveyance and bulk transfer claims under state law. 11 U.S.C. § 544. If there are assets, the trustee collects the sale proceeds in a fund from which the debts are paid to the extent possible. Under § 726 of the Bankruptcy Code, property is distributed according to six classes of claims; each class must be paid in full before creditors in the next lower class are paid anything.
The trustee holds a meeting of creditors"within a reasonable time" after the debtor files the petition. 11 U.S.C. § 341(a). During this meeting, the trustee and creditors may ask the debtor, who is under oath, questions. The debtor must attend the meeting of creditors and answer questions about his or her property and financial matters. 11 U.S.C. § 343.
When a debtor wants to keep certain secured property (such as a car) after bankruptcy, he or she may choose to reaffirm the debt. In a reaffirmation agreement, the debtor and creditor agree that the debtor will pay all or part of an otherwise dischargeable debt after bankruptcy. The creditor promises that it will not repossess the property as long as the debtor continues to pay the debt. Reaffirmation agreements must be entered into before discharge is entered and they must be signed by the debtor and filed with the court. 11 U.S.C. § 524(c).
When all of the proceeds are distributed, most remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, such as student loans, damages resulting from the debtor's willful or malicious acts, debts incurred by giving false financial information, domestic support obligations and some debts incurred just prior to filing for bankruptcy, are non-dischargeable. 11 U.S.C. § 523. A court may deny a discharge if the debtor failed to keep or produce financial records; failed to satisfactorily explain any loss of assets; committed perjury; failed to follow an order of the court; fraudulently transferred or hid property; or failed to complete the required financial management course.
Chapter 7 bankruptcies may be "voluntary" or "involuntary"
Most Chapter 7 bankruptcy cases are filed by the debtor and are thus considered "voluntary bankruptcies." Not all bankruptcy proceedings are voluntary, however. Under Chapter 7, creditors have the option of filing for relief against the debtor, in which case the proceeding is called an "involuntary bankruptcy." Involuntary bankruptcies are allowed only when certain minimum thresholds are met; for instance, there must be a minimum number of creditors and a minimum amount of debt. 11 U.S.C. § 303. The debtor has the right to file a response to an involuntary petition, after which the court will determine whether the creditors are actually entitled to relief. If the court dismisses an involuntary bankruptcy filing because it has no merit, the creditors may be ordered to pay the debtor's reasonable attorneys fees, damages for any losses the debtor experienced because of the bankruptcy and even punitive damages to punish the creditors for the frivolous or abusive filing of a petition. 11 U.S.C. § 303(i).
Speak to a bankruptcy lawyer
A bankruptcy lawyer can help debtors overcome obstacles to the repayment of debt. Because the Bankruptcy Code affords various forms of relief, including liquidation under Chapter 7, it is recommended that you seek the advice of a lawyer before making major financial and legal decisions. Contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation with a bankruptcy attorney to discuss your options.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT
On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which instituted substantial changes to the Bankruptcy Code. Most provisions of BAPCPA became effective in October 2005. In an effort to exclude from Chapter 7 relief those debtors deemed to have the ability to pay at least some of the debts that would otherwise be discharged in Chapter 7, BAPCPA tightened the eligibility requirements for Chapter 7 and broadened the court's power to dismiss Chapter 7 petitions for "abuse." If you are considering filing for Chapter 7 bankruptcy and have questions about whether you will qualify, contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation with a bankruptcy lawyer.
Chapter 7 Means Test
One of the most significant aspects of the new bankruptcy laws is the means test for individuals with primarily consumer debts who wish to file for Chapter 7. Under § 108(8) of the Bankruptcy Code, a consumer debt is "primarily for a personal, family, or household purpose." If the debtor is above the threshold established by the means test, his or her Chapter 7 petition may be dismissed, or the case could be converted to a filing under Chapters 11 or 13, if the debtor consents.
If the debtor's current monthly income is less than the state median, the debtor automatically qualifies for Chapter 7. If the debtor's current monthly income is more than the state median income, the means test will be applied to determine if filing for Chapter 7 is presumptively abusive. This step is a bit tricky. If the debtor's projected disposable income, which is monthly income minus certain allowable expenses, over the next five years is less than $6,000 ($100/month), you are eligible to file under Chapter 7. However, if the debtor's current monthly income minus the allowable expenses and multiplied by 60 (the number of months for the next five years) is more than the lesser of (1) 25 percent of the debtor's non-priority unsecured claims in the case or $6,000, whichever is greater; or (2) $10,000, the court will presume that abuse exists. 11 U.S.C. § 707(b)(2)(A)(i). If this is the case, the debtor will not be allowed to file for Chapter 7 unless he or she can show special circumstances, such as a "serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative." 11 U.S.C. § 707.
If the debtor's current monthly income is less than the state median, the debtor automatically qualifies for Chapter 7. If the debtor's current monthly income is more than the state median income, the means test will be applied to determine if filing for Chapter 7 is presumptively abusive. This step is a bit tricky. If the debtor's projected disposable income, which is monthly income minus certain allowable expenses, over the next five years is less than $6,000 ($100/month), you are eligible to file under Chapter 7. However, if the debtor's current monthly income minus the allowable expenses and multiplied by 60 (the number of months for the next five years) is more than the lesser of (1) 25 percent of the debtor's non-priority unsecured claims in the case or $6,000, whichever is greater; or (2) $10,000, the court will presume that abuse exists. 11 U.S.C. § 707(b)(2)(A)(i). If this is the case, the debtor will not be allowed to file for Chapter 7 unless he or she can show special circumstances, such as a "serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative." 11 U.S.C. § 707.
Other requirements for the debtor
BAPCPA includes a number of additional requirements for a debtor seeking to file under Chapter 7. Individual debtors are now required to obtain an individual or group briefing from an approved nonprofit budget and credit counseling agency within 180 days of filing for bankruptcy. 11 U.S.C. § 109(h). This briefing must, at a minimum, outline opportunities for available credit counseling and assist the debtor in performing a budget analysis. Another critical requirement is that prior to receiving a discharge, a Chapter 7 debtor must complete a personal financial management course. 11 U.S.C. §§ 111, 727(a)(11). Section 521(e) requires that debtors filing under either Chapter 7 or 13 provide a copy of their most recent tax return to the trustee before the meeting of creditors. The debtor must also provide a copy the tax return to any creditor that requests one. Finally, before a debtor submits documents to the court or a trustee, the debtor and his or her attorney must make a reasonable inquiry under the circumstances to verify that the information, legal arguments and factual contentions contained in such documents are not being presented for any improper purpose, are well grounded in fact and are warranted by existing law. Fed. R. Bankr. P. 9011.
Duties of the trustee
The trustee's duties were also expanded under BAPCPA. Under sections 704(a)(10) and (c)(10), the trustee must advise a domestic support creditor in writing of the existence of and right to use support enforcement and collection agencies. The trustee must also provide notice of such claims to those agencies. If the debtor was serving as an administrator of an employee benefit plan at the time of filing, the trustee must perform the duties of an administrator. 11 U.S.C. § 704(a)(11). If a debtor is a health care business, the trustee must use "all reasonable and best efforts" to transfer that business's patients to another such business in the same physical area that provides substantially similar services with a reasonable quality of care. 11 U.S.C. § 704(a)(12).
Speak to a bankruptcy lawyer
Although BAPCPA has made it more difficult for individuals with consumer debt to file for Chapter 7 bankruptcy, it is still possible, and the majority of debtors still qualify for Chapter 7 relief. An experienced bankruptcy attorney at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, can determine whether you qualify for Chapter 7 and help you navigate the requirements for filing.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
DISCHARGE UNDER CHAPTER 7
"Discharge" in the bankruptcy sense refers to clearing the debtor's slate of all, or most, past debts. Although many people expect that filing for bankruptcy will wipe out all of their debts, that is not always the case. Bankruptcy only discharges certain debts. The availability of discharge depends on the type of bankruptcy proceeding involved, who the debtor is and what type of debts the debtor has. Contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation with a bankruptcy attorney to learn more about which debts will be discharged by a Chapter 7 bankruptcy and which debts will remain.
A discharge does not wipe the slate completely clean, but it does afford great relief
There are a number of prerequisites for obtaining a discharge. In a Chapter 7 liquidation case, if the debtor was in some way dishonest or uncooperative, such as by making fraudulent transfers or failing to keep adequate records prior to filing or by ignoring lawful court orders after filing, the court may deny discharge. In addition, a Chapter 7 debtor cannot have his or her debts discharged under Chapter 7 more than once every eight years. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) provides that in order to receive a discharge, an individual debtor must complete a personal financial management class. 11 U.S.C. § 727.
When a discharge is granted, it protects the debtor from any further liability on the discharged debts. No legal action may be taken against the debtor to collect on discharged debts, and no collection calls or letters may be sent with regard to such debts. A discharge does not actually cancel or extinguish the debt, however; it merely extinguishes the debtor's personal liability. Also, a discharge does not automatically discharge a co-debtor's or guarantor's liability. 11 U.S.C. § 524.
A bankruptcy discharge also has no effect on liens. Take, for example, the situation in which the debtor owes the creditor $5,000 and the debt is secured by the debtor's car, which is worth $3,000. If the debtor files for Chapter 7 relief and receives a discharge, the discharge does not extinguish the creditor's security interest in the debtor's car. In other words, the creditor can still repossess the car. However, it cannot go after the debtor for the $2,000 difference between the debt and the value of the security. That is the personal protection afforded to the debtor by the bankruptcy discharge.
A court may revoke a Chapter 7 discharge if the trustee or a creditor requests it, and if the debtor obtained the discharge through fraudulent means; acquired property that is property of the estate and knowingly failed to report the property or give it to the trustee; or made a material misstatement or failed to provide information in connection with an audit of his or her case. 11 U.S.C. § 727(d).
When a discharge is granted, it protects the debtor from any further liability on the discharged debts. No legal action may be taken against the debtor to collect on discharged debts, and no collection calls or letters may be sent with regard to such debts. A discharge does not actually cancel or extinguish the debt, however; it merely extinguishes the debtor's personal liability. Also, a discharge does not automatically discharge a co-debtor's or guarantor's liability. 11 U.S.C. § 524.
A bankruptcy discharge also has no effect on liens. Take, for example, the situation in which the debtor owes the creditor $5,000 and the debt is secured by the debtor's car, which is worth $3,000. If the debtor files for Chapter 7 relief and receives a discharge, the discharge does not extinguish the creditor's security interest in the debtor's car. In other words, the creditor can still repossess the car. However, it cannot go after the debtor for the $2,000 difference between the debt and the value of the security. That is the personal protection afforded to the debtor by the bankruptcy discharge.
A court may revoke a Chapter 7 discharge if the trustee or a creditor requests it, and if the debtor obtained the discharge through fraudulent means; acquired property that is property of the estate and knowingly failed to report the property or give it to the trustee; or made a material misstatement or failed to provide information in connection with an audit of his or her case. 11 U.S.C. § 727(d).
Debts that remain after a Chapter 7 discharge
Generally speaking, in a Chapter 7 proceeding, the following debts are not discharged:
- Debts or creditors not listed on the schedules filed at the outset of the case
- Most student loans, unless repayment would cause the debtor and his or her dependents undue hardship
- Recent federal, state and local taxes
- Child support and spousal maintenance (alimony)
- Government-imposed restitution, fines and penalties
- Court fees
- Debts resulting from driving while intoxicated
- Debts not dischargeable in a previous bankruptcy because of the debtor's fraud
11 U.S.C. § 523
A note about student loans
Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 bankruptcy. Student loans may be dischargeable, however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents. In order to qualify for a hardship discharge of a student loan, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts often apply a three-part test to determine eligibility:
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts often apply a three-part test to determine eligibility:
- Income - if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents
- Duration - the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period
- Good faith -the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy
Additional Non-Dischargeable Debts
In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:
In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:
- Debts from fraud, including certain debts for luxury goods or services incurred within 90 days before filing and certain cash advances taken within 70 days after filing
- Debts from willful and malicious acts
- Debts from embezzlement, larceny or breach of fiduciary duty
- Debts from a divorce settlement agreement or court decree, if the debtor has the ability to pay and the detriment to the recipient would be greater than the benefit to the debtor
Speak to a bankruptcy lawyer
If you have questions about which debts will be affected by a bankruptcy discharge, it is important to seek the advice and counsel of an experienced bankruptcy attorney at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California assisting those in need in Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California .
EXEMPT VS. NON-EXEMPT PROPERTY UNDER CHAPTER 7
In a Chapter 7 liquidation case, the debtor must relinquish certain property to the bankruptcy trustee so that he or she can sell the property and use the proceeds to pay off debts. Property of the bankruptcy estate is broadly defined in the Bankruptcy Code. 11 U.S.C. § 541. The bankruptcy estate is technically the legal owner of all of the debtor's property and consists of all legal and equitable interests that the debtor has in property at the initiation of the bankruptcy case. Income that the debtor earns after the date of the petition is not included in the bankruptcy estate. Debtors, whether they are businesses or individuals, are often justifiably concerned about what property they will be allowed to keep and what they must give up. A bankruptcy lawyer at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, can answer these and other questions, allay fears and keep the process moving forward as painlessly as possible.
Non-exempt property
Items that the debtor usually must forfeit include:
- Expensive musical instruments, unless the debtor is a professional musician
- Collections of stamps, coins and other valuable items
- Family heirlooms
- Cash, bank accounts, stocks, bonds and other investments
- A second car or truck
- A second home or vacation home
Exempt property
A debtor must file a schedule of exempt property with the court. Exempt property is property that the debtor can protect from liquidation. The Bankruptcy Code allows each state to adopt its own exemption laws, which the debtor can select instead of the federal exemptions. It is important to consult with an attorney who can explain the exemptions available under your state's laws and how they compare to the available federal exemptions.
Exempt property typically includes:
Exempt property typically includes:
- Motor vehicles, up to a certain value
- Reasonably necessary clothing
- Reasonably necessary household goods and furnishings
- Household appliances
- Jewelry, up to a certain value
- Pensions
- A portion of the equity in the debtor's home
- Tools of the debtor's trade or profession, up to a certain value
- A portion of unpaid but earned wages
- Public benefits - including public assistance (welfare), social security and unemployment compensation - accumulated in a bank account
- Damages awarded for personal injury
Speak to a bankruptcy lawyer
If you have questions about what property you will be allowed to retain if you file for bankruptcy under Chapter 7 of the Bankruptcy Code, it is prudent to seek the counsel of an experienced and knowledgeable bankruptcy attorney. Contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation.
ALTERNATIVES TO CHAPTER 7 BANKRUPTCY
The term "workout" is used to describe a non-bankruptcy negotiated modification of debt. More simply stated, a workout is an out-of-court agreement between a debtor and his or her creditors for repayment of the debts between them, which is negotiated without all the procedural complications - and perhaps the stigma - of the bankruptcy process. A lawyer at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, who is experienced in bankruptcy and debtor-creditor law, can advise both debtors and creditors in Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California about whether a non-bankruptcy workout is their best course of action.
Why choose a workout?
There are a variety of reasons why a debtor might prefer a workout to bankruptcy. By entering into a voluntary agreement with creditors, the debtor avoids the stigma that attaches to bankruptcy but achieves the same results - discharge from all or a portion of his or her debts. In fact, a workout discharge can be even broader than a bankruptcy discharge. In addition, a workout discharge does not affect the debtor's rights to file a future bankruptcy, whereas certain types of bankruptcy discharges do. The main advantage of a workout is that both the debtor and the participating creditors voluntarily enter into it. In a workout, unlike bankruptcy, the majority of creditors cannot cram down concessions on dissenting creditors.
Non-bankruptcy alternatives
Compositions and extensions - A "composition" is a contract between the debtor and two or more creditors in which the creditors agree to take a partial payment in full satisfaction of their claims. An "extension" is a contract between the debtor and two or more creditors in which the creditors agree to extend the time for payment of their claims. An agreement may be both a composition and an extension; in other words, an agreement to accept less money over a longer period of time.
There is no requirement that all of the debtor's creditors agree to a composition or extension, but most of them must voluntarily support it for it to work. Creditors that do not agree to the workout are not affected by it and remain entitled to pursue other remedies to collect the debts owed to them. Although they can theoretically proceed to recover the full amount due, they forfeit the right to benefit automatically from whatever partial payment the composition would have allowed had they taken part.
Assignment for the benefit of creditors - An assignment may be a simpler and cheaper alternative to bankruptcy for a small business that wishes to be liquidated. The debtor assigns all nonexempt property to an assignee who acts as a fiduciary for the benefit of creditors. The assignee liquidates the assets and distributes the proceeds pro rata among creditors who have filed claims with the assignee. An assignment is voluntary, but all creditors must accept it.
There is no requirement that all of the debtor's creditors agree to a composition or extension, but most of them must voluntarily support it for it to work. Creditors that do not agree to the workout are not affected by it and remain entitled to pursue other remedies to collect the debts owed to them. Although they can theoretically proceed to recover the full amount due, they forfeit the right to benefit automatically from whatever partial payment the composition would have allowed had they taken part.
Assignment for the benefit of creditors - An assignment may be a simpler and cheaper alternative to bankruptcy for a small business that wishes to be liquidated. The debtor assigns all nonexempt property to an assignee who acts as a fiduciary for the benefit of creditors. The assignee liquidates the assets and distributes the proceeds pro rata among creditors who have filed claims with the assignee. An assignment is voluntary, but all creditors must accept it.
Bankruptcy alternatives
Chapter 11 - Filing for bankruptcy under Chapter 11 may be an option for debtors such as corporations, sole proprietorships and partnerships that are engaged in business. These debtors may wish to stay in business and avoid liquidation. Under Chapter 11, the debtor can have debts reduced or have the time for repayment extended.
Chapter 13 - Chapter 13 may be an option for individual debtors with regular income. Chapter 13 allows individual debtors to save their homes from foreclosure by coming up with a payment plan for past due payments. Sole proprietorships may also be eligible to file for Chapter 13.
Chapter 13 - Chapter 13 may be an option for individual debtors with regular income. Chapter 13 allows individual debtors to save their homes from foreclosure by coming up with a payment plan for past due payments. Sole proprietorships may also be eligible to file for Chapter 13.
Speak to a bankruptcy lawyer
Non-bankruptcy alternatives such as compositions and extensions have several benefits. However, in some circumstances, a debtor is afforded greater protection by a formal bankruptcy, and attempting a workout may just prolong the financial agony and delay the inevitable. An attorney who has experience in bankruptcy and debtor-creditor law at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, can help both debtors and creditors around Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California determine whether a workout is the best option for debt repayment, or whether bankruptcy is the better choice in their particular circumstances. Call today to schedule a consultation.
CHAPTER 7 RESOURCE LINKS
U.S. Bankruptcy Courts
A brief overview of the structure and function of bankruptcy courts.
Bankruptcy Basics: Chapter 7
Basic overview of liquidation under Chapter 7 of the Bankruptcy Code.
Bankruptcy: An Overview
A general overview of the topic of bankruptcy, along with state and federal materials, from Cornell University.
U.S. Bankruptcy Courts by State
Links to U.S. Bankruptcy Court sites.
Official Bankruptcy Forms
From the Administrative Office of the U.S. Courts.
A brief overview of the structure and function of bankruptcy courts.
Bankruptcy Basics: Chapter 7
Basic overview of liquidation under Chapter 7 of the Bankruptcy Code.
Bankruptcy: An Overview
A general overview of the topic of bankruptcy, along with state and federal materials, from Cornell University.
U.S. Bankruptcy Courts by State
Links to U.S. Bankruptcy Court sites.
Official Bankruptcy Forms
From the Administrative Office of the U.S. Courts.
Bankruptcy Rules
Links to official Bankruptcy Rules.
Experian
Features consumer information about credit reports, establishing credit, risk scores and more.
Trans Union LLC
Features consumer FAQs on credit reports.
National Foundation for Credit Counseling
Features credit facts, budget calculators and more.
Links to official Bankruptcy Rules.
Experian
Features consumer information about credit reports, establishing credit, risk scores and more.
Trans Union LLC
Features consumer FAQs on credit reports.
National Foundation for Credit Counseling
Features credit facts, budget calculators and more.
Contact a Lawyer Today
For a free consultation with the Bankruptcy Law Offices of Stephen Johnson in Auburn, including Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California. Call (530) 823-3655, or contact us online.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
There are several companies available that promise to take over all of your consumer debt and negotiate directly with your creditors in your behalf. Some of these business are "non-profit" agencies but most of them are private businesses. They typically promise to reduce your interest rate and lower the amount of the actual debt.
Pros:
- They can provide immediate relief from the pressure of creditor harassment
- They can come up with a plan that does actually reduce the amount you owe.
Cons:
- Most of them work for and are funded by the credit card companies
- They are limited as to the total reduction of the accounts
- The final payment you are required to make on these debts goes through their office and is usually not much of a reduction over what you would normally pay.
- They charge a fee for their services which can be substantial in some cases.
- The payment plans often extend over several years.
- The impact on your credit is usually insignificant and will delay your "credit recovery" in most cases rather than expedite it.
Negotiate Directly with your Creditors
- Typically a credit card company will negotiate the balance of an account down to 50% (or even less) if they feel that ultimate payment by you is in doubt.
- In most cases the more delinquent you are the more willing they are to compromise the debt.
- The negotiations can be difficult because these are professional debt collectors you are dealing with.
- You can handle these negotiations yourself or retain a professional to represent you which requires your written authorization.
- Most compromises that are agreed upon require a cash payment in full to the creditor upon completion of the agreement.
Don't Pay Your Creditors (Ignore them)
- Creditors will typically try to collect the debt as long as they can contact you by phone, letter, or in person. This will go on for at least 10 years, often longer.
- Talking with them to "explain" your situation is a waste of time in the vast majority of situations. This sends the message that you care about the debt which encourages them in their collection efforts and often results in escalation of collection activity.
- The creditor may sue you over the debt which will result in a judgment against you.
- If your plan is to try to avoid these creditors as long as you can then you would probably want to take steps to make yourself "judgment proof" if possible.
- It is advisable to seek counsel with an attorney if this is the plan of action you plan on pursuing.
Borrow Money from your Retirement Account or from Friends or Relative
- This is usually inadvisable and can greatly compound your debt problems. Often there are unexpected tax consequences.
- Be sure you have thoroughly explored all other alternative and consulted with an attorney before you take this kind of a step.
Refinance your property or take out a 2nd mortgage.
- "Usually not advisable. (See comments above)
Bankruptcy Information
For most consumers, life before bankruptcy is fraught with financial difficulties. It is important to remember that although bankruptcy is not the first resort, it is best not to wait too long to take action. If you are facing what seems to be insurmountable debt, contact a chapter 7 attorney at once in order to make the best of a bad situation.
ABOUT THE BANKRUPTCY PROCESS
The bankruptcy laws are powerful tools that can be used to obtain debt relief.
At the Bankruptcy Law Offices of Stephen Johnson, we are experienced bankruptcy practitioners who work to obtain maximum debt relief for our clients while enabling them to retain as much property as possible.
Some general information about bankruptcy appears below. You probably have additional questions about what can be done to help you obtain debt relief.
In a free consultation, an attorney at our firm can review your situation and recommend the right solution for you.
At the Bankruptcy Law Offices of Stephen Johnson, we are experienced bankruptcy practitioners who work to obtain maximum debt relief for our clients while enabling them to retain as much property as possible.
Some general information about bankruptcy appears below. You probably have additional questions about what can be done to help you obtain debt relief.
In a free consultation, an attorney at our firm can review your situation and recommend the right solution for you.
CHAPTER 7 BANKRUPTCY - AN OVERVIEW
Both individuals and businesses may find themselves with more debts than they can pay when due. In such cases, filing for bankruptcy may provide a solution to what seems like an insurmountable problem. Bankruptcy provides two basic forms of relief: (1) liquidation and (2) rehabilitation, also known as reorganization. Most bankruptcies filed in the United States involve liquidation, which is governed by Chapter 7 of the Bankruptcy Code. An attorney at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, servicing Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California can advise individuals and businesses about whether Chapter 7 is the right choice for them. The bankruptcy lawyer's goals are to help Chapter 7 debtors make a fresh start and ensure that creditors are paid.
Chapter 7 relief is available to both individuals and businesses
Chapter 7 bankruptcies, also called "straight bankruptcies," are the most common form chosen by individual consumers. In a Chapter 7 consumer bankruptcy, the individual debtor's estate is liquidated and the assets are distributed to creditors. Partnerships, sole proprietorships and corporations are also eligible to file under Chapter 7. However, unlike individuals, these business entities are not eligible to receive a discharge. 11 U.S.C. § 727(a)(1). Chapter 7 business liquidations are conducted in significantly the same manner as Chapter 7 consumer bankruptcies - many of the business's assets are sold and the proceeds are divided among the company's creditors. Partnerships or corporations that wish to keep doing business may decide that Chapter 7 is not the best option because after liquidation and distribution, the business ceases to exist.
Bankruptcy proceedings
A Chapter 7 case begins with the debtor's filing of the petition with the bankruptcy court, which triggers the automatic stay - bankruptcy terminology for the termination of all debt-collection activity. Filing a petition does not stay certain types of actions, and the stay may only be in place for a limited period of time. As long as the automatic stay is in place, creditors may not initiate or continue lawsuits against the debtor, garnish wages or call the debtor demanding payments.
The debtor must also file a schedule of assets and liabilities; a schedule of current income and expenditures; a statement of financial affairs; and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. There are additional filing requirements for individual debtors with primarily consumer debts. These debtors must file a certificate of credit counseling and a copy of any debt repayment plan; evidence of any payments from employers made 60 days before filing; a statement of monthly net income and any anticipated increases in income or expenses after filing; and a record of any interest the debtor has in state or federal qualified education or tuition accounts. 11 U.S.C. § 521.
The court appoints a trustee who oversees the Chapter 7 case and liquidates the debtor's assets in order to pay off the debts. In many cases, however, the debtor's assets are exempt or already subject to valid liens, so there will be no assets to liquidate. Most consumer bankruptcies are "no asset" cases in which there is nothing available for the creditors. The trustee can also try to recover money for the estate under the trustee's "avoiding powers." These powers include the power to set aside preferential transfers to creditors within 90 days of filing; undo security interests and pre-petition transfers that were not properly perfected; and pursue fraudulent conveyance and bulk transfer claims under state law. 11 U.S.C. § 544. If there are assets, the trustee collects the sale proceeds in a fund from which the debts are paid to the extent possible. Under § 726 of the Bankruptcy Code, property is distributed according to six classes of claims; each class must be paid in full before creditors in the next lower class are paid anything.
The trustee holds a meeting of creditors"within a reasonable time" after the debtor files the petition. 11 U.S.C. § 341(a). During this meeting, the trustee and creditors may ask the debtor, who is under oath, questions. The debtor must attend the meeting of creditors and answer questions about his or her property and financial matters. 11 U.S.C. § 343.
When a debtor wants to keep certain secured property (such as a car) after bankruptcy, he or she may choose to reaffirm the debt. In a reaffirmation agreement, the debtor and creditor agree that the debtor will pay all or part of an otherwise dischargeable debt after bankruptcy. The creditor promises that it will not repossess the property as long as the debtor continues to pay the debt. Reaffirmation agreements must be entered into before discharge is entered and they must be signed by the debtor and filed with the court. 11 U.S.C. § 524(c).
When all of the proceeds are distributed, most remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, such as student loans, damages resulting from the debtor's willful or malicious acts, debts incurred by giving false financial information, domestic support obligations and some debts incurred just prior to filing for bankruptcy, are non-dischargeable. 11 U.S.C. § 523. A court may deny a discharge if the debtor failed to keep or produce financial records; failed to satisfactorily explain any loss of assets; committed perjury; failed to follow an order of the court; fraudulently transferred or hid property; or failed to complete the required financial management course.
The debtor must also file a schedule of assets and liabilities; a schedule of current income and expenditures; a statement of financial affairs; and a schedule of executory contracts and unexpired leases. Fed. R. Bankr. P. 1007. There are additional filing requirements for individual debtors with primarily consumer debts. These debtors must file a certificate of credit counseling and a copy of any debt repayment plan; evidence of any payments from employers made 60 days before filing; a statement of monthly net income and any anticipated increases in income or expenses after filing; and a record of any interest the debtor has in state or federal qualified education or tuition accounts. 11 U.S.C. § 521.
The court appoints a trustee who oversees the Chapter 7 case and liquidates the debtor's assets in order to pay off the debts. In many cases, however, the debtor's assets are exempt or already subject to valid liens, so there will be no assets to liquidate. Most consumer bankruptcies are "no asset" cases in which there is nothing available for the creditors. The trustee can also try to recover money for the estate under the trustee's "avoiding powers." These powers include the power to set aside preferential transfers to creditors within 90 days of filing; undo security interests and pre-petition transfers that were not properly perfected; and pursue fraudulent conveyance and bulk transfer claims under state law. 11 U.S.C. § 544. If there are assets, the trustee collects the sale proceeds in a fund from which the debts are paid to the extent possible. Under § 726 of the Bankruptcy Code, property is distributed according to six classes of claims; each class must be paid in full before creditors in the next lower class are paid anything.
The trustee holds a meeting of creditors"within a reasonable time" after the debtor files the petition. 11 U.S.C. § 341(a). During this meeting, the trustee and creditors may ask the debtor, who is under oath, questions. The debtor must attend the meeting of creditors and answer questions about his or her property and financial matters. 11 U.S.C. § 343.
When a debtor wants to keep certain secured property (such as a car) after bankruptcy, he or she may choose to reaffirm the debt. In a reaffirmation agreement, the debtor and creditor agree that the debtor will pay all or part of an otherwise dischargeable debt after bankruptcy. The creditor promises that it will not repossess the property as long as the debtor continues to pay the debt. Reaffirmation agreements must be entered into before discharge is entered and they must be signed by the debtor and filed with the court. 11 U.S.C. § 524(c).
When all of the proceeds are distributed, most remaining unpaid debts are discharged, meaning that they no longer exist and the debtor has no further obligation to pay them. Some debts, such as student loans, damages resulting from the debtor's willful or malicious acts, debts incurred by giving false financial information, domestic support obligations and some debts incurred just prior to filing for bankruptcy, are non-dischargeable. 11 U.S.C. § 523. A court may deny a discharge if the debtor failed to keep or produce financial records; failed to satisfactorily explain any loss of assets; committed perjury; failed to follow an order of the court; fraudulently transferred or hid property; or failed to complete the required financial management course.
Chapter 7 bankruptcies may be "voluntary" or "involuntary"
Most Chapter 7 bankruptcy cases are filed by the debtor and are thus considered "voluntary bankruptcies." Not all bankruptcy proceedings are voluntary, however. Under Chapter 7, creditors have the option of filing for relief against the debtor, in which case the proceeding is called an "involuntary bankruptcy." Involuntary bankruptcies are allowed only when certain minimum thresholds are met; for instance, there must be a minimum number of creditors and a minimum amount of debt. 11 U.S.C. § 303. The debtor has the right to file a response to an involuntary petition, after which the court will determine whether the creditors are actually entitled to relief. If the court dismisses an involuntary bankruptcy filing because it has no merit, the creditors may be ordered to pay the debtor's reasonable attorneys fees, damages for any losses the debtor experienced because of the bankruptcy and even punitive damages to punish the creditors for the frivolous or abusive filing of a petition. 11 U.S.C. § 303(i).
Speak to a bankruptcy lawyer
A bankruptcy lawyer can help debtors overcome obstacles to the repayment of debt. Because the Bankruptcy Code affords various forms of relief, including liquidation under Chapter 7, it is recommended that you seek the advice of a lawyer before making major financial and legal decisions. Contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation with a bankruptcy attorney to discuss your options.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT
On April 20, 2005, President Bush signed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), which instituted substantial changes to the Bankruptcy Code. Most provisions of BAPCPA became effective in October 2005. In an effort to exclude from Chapter 7 relief those debtors deemed to have the ability to pay at least some of the debts that would otherwise be discharged in Chapter 7, BAPCPA tightened the eligibility requirements for Chapter 7 and broadened the court's power to dismiss Chapter 7 petitions for "abuse." If you are considering filing for Chapter 7 bankruptcy and have questions about whether you will qualify, contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation with a bankruptcy lawyer.
Chapter 7 Means Test
One of the most significant aspects of the new bankruptcy laws is the means test for individuals with primarily consumer debts who wish to file for Chapter 7. Under § 108(8) of the Bankruptcy Code, a consumer debt is "primarily for a personal, family, or household purpose." If the debtor is above the threshold established by the means test, his or her Chapter 7 petition may be dismissed, or the case could be converted to a filing under Chapters 11 or 13, if the debtor consents.
If the debtor's current monthly income is less than the state median, the debtor automatically qualifies for Chapter 7. If the debtor's current monthly income is more than the state median income, the means test will be applied to determine if filing for Chapter 7 is presumptively abusive. This step is a bit tricky. If the debtor's projected disposable income, which is monthly income minus certain allowable expenses, over the next five years is less than $6,000 ($100/month), you are eligible to file under Chapter 7. However, if the debtor's current monthly income minus the allowable expenses and multiplied by 60 (the number of months for the next five years) is more than the lesser of (1) 25 percent of the debtor's non-priority unsecured claims in the case or $6,000, whichever is greater; or (2) $10,000, the court will presume that abuse exists. 11 U.S.C. § 707(b)(2)(A)(i). If this is the case, the debtor will not be allowed to file for Chapter 7 unless he or she can show special circumstances, such as a "serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative." 11 U.S.C. § 707.
If the debtor's current monthly income is less than the state median, the debtor automatically qualifies for Chapter 7. If the debtor's current monthly income is more than the state median income, the means test will be applied to determine if filing for Chapter 7 is presumptively abusive. This step is a bit tricky. If the debtor's projected disposable income, which is monthly income minus certain allowable expenses, over the next five years is less than $6,000 ($100/month), you are eligible to file under Chapter 7. However, if the debtor's current monthly income minus the allowable expenses and multiplied by 60 (the number of months for the next five years) is more than the lesser of (1) 25 percent of the debtor's non-priority unsecured claims in the case or $6,000, whichever is greater; or (2) $10,000, the court will presume that abuse exists. 11 U.S.C. § 707(b)(2)(A)(i). If this is the case, the debtor will not be allowed to file for Chapter 7 unless he or she can show special circumstances, such as a "serious medical condition or a call or order to active duty in the Armed Forces, to the extent such special circumstances that justify additional expenses or adjustments of current monthly income for which there is no reasonable alternative." 11 U.S.C. § 707.
Other requirements for the debtor
BAPCPA includes a number of additional requirements for a debtor seeking to file under Chapter 7. Individual debtors are now required to obtain an individual or group briefing from an approved nonprofit budget and credit counseling agency within 180 days of filing for bankruptcy. 11 U.S.C. § 109(h). This briefing must, at a minimum, outline opportunities for available credit counseling and assist the debtor in performing a budget analysis. Another critical requirement is that prior to receiving a discharge, a Chapter 7 debtor must complete a personal financial management course. 11 U.S.C. §§ 111, 727(a)(11). Section 521(e) requires that debtors filing under either Chapter 7 or 13 provide a copy of their most recent tax return to the trustee before the meeting of creditors. The debtor must also provide a copy the tax return to any creditor that requests one. Finally, before a debtor submits documents to the court or a trustee, the debtor and his or her attorney must make a reasonable inquiry under the circumstances to verify that the information, legal arguments and factual contentions contained in such documents are not being presented for any improper purpose, are well grounded in fact and are warranted by existing law. Fed. R. Bankr. P. 9011.
Duties of the trustee
The trustee's duties were also expanded under BAPCPA. Under sections 704(a)(10) and (c)(10), the trustee must advise a domestic support creditor in writing of the existence of and right to use support enforcement and collection agencies. The trustee must also provide notice of such claims to those agencies. If the debtor was serving as an administrator of an employee benefit plan at the time of filing, the trustee must perform the duties of an administrator. 11 U.S.C. § 704(a)(11). If a debtor is a health care business, the trustee must use "all reasonable and best efforts" to transfer that business's patients to another such business in the same physical area that provides substantially similar services with a reasonable quality of care. 11 U.S.C. § 704(a)(12).
Speak to a bankruptcy lawyer
Although BAPCPA has made it more difficult for individuals with consumer debt to file for Chapter 7 bankruptcy, it is still possible, and the majority of debtors still qualify for Chapter 7 relief. An experienced bankruptcy attorney at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, can determine whether you qualify for Chapter 7 and help you navigate the requirements for filing.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
DISCHARGE UNDER CHAPTER 7
"Discharge" in the bankruptcy sense refers to clearing the debtor's slate of all, or most, past debts. Although many people expect that filing for bankruptcy will wipe out all of their debts, that is not always the case. Bankruptcy only discharges certain debts. The availability of discharge depends on the type of bankruptcy proceeding involved, who the debtor is and what type of debts the debtor has. Contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation with a bankruptcy attorney to learn more about which debts will be discharged by a Chapter 7 bankruptcy and which debts will remain.
A discharge does not wipe the slate completely clean, but it does afford great relief
There are a number of prerequisites for obtaining a discharge. In a Chapter 7 liquidation case, if the debtor was in some way dishonest or uncooperative, such as by making fraudulent transfers or failing to keep adequate records prior to filing or by ignoring lawful court orders after filing, the court may deny discharge. In addition, a Chapter 7 debtor cannot have his or her debts discharged under Chapter 7 more than once every eight years. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) provides that in order to receive a discharge, an individual debtor must complete a personal financial management class. 11 U.S.C. § 727.
When a discharge is granted, it protects the debtor from any further liability on the discharged debts. No legal action may be taken against the debtor to collect on discharged debts, and no collection calls or letters may be sent with regard to such debts. A discharge does not actually cancel or extinguish the debt, however; it merely extinguishes the debtor's personal liability. Also, a discharge does not automatically discharge a co-debtor's or guarantor's liability. 11 U.S.C. § 524.
A bankruptcy discharge also has no effect on liens. Take, for example, the situation in which the debtor owes the creditor $5,000 and the debt is secured by the debtor's car, which is worth $3,000. If the debtor files for Chapter 7 relief and receives a discharge, the discharge does not extinguish the creditor's security interest in the debtor's car. In other words, the creditor can still repossess the car. However, it cannot go after the debtor for the $2,000 difference between the debt and the value of the security. That is the personal protection afforded to the debtor by the bankruptcy discharge.
A court may revoke a Chapter 7 discharge if the trustee or a creditor requests it, and if the debtor obtained the discharge through fraudulent means; acquired property that is property of the estate and knowingly failed to report the property or give it to the trustee; or made a material misstatement or failed to provide information in connection with an audit of his or her case. 11 U.S.C. § 727(d).
When a discharge is granted, it protects the debtor from any further liability on the discharged debts. No legal action may be taken against the debtor to collect on discharged debts, and no collection calls or letters may be sent with regard to such debts. A discharge does not actually cancel or extinguish the debt, however; it merely extinguishes the debtor's personal liability. Also, a discharge does not automatically discharge a co-debtor's or guarantor's liability. 11 U.S.C. § 524.
A bankruptcy discharge also has no effect on liens. Take, for example, the situation in which the debtor owes the creditor $5,000 and the debt is secured by the debtor's car, which is worth $3,000. If the debtor files for Chapter 7 relief and receives a discharge, the discharge does not extinguish the creditor's security interest in the debtor's car. In other words, the creditor can still repossess the car. However, it cannot go after the debtor for the $2,000 difference between the debt and the value of the security. That is the personal protection afforded to the debtor by the bankruptcy discharge.
A court may revoke a Chapter 7 discharge if the trustee or a creditor requests it, and if the debtor obtained the discharge through fraudulent means; acquired property that is property of the estate and knowingly failed to report the property or give it to the trustee; or made a material misstatement or failed to provide information in connection with an audit of his or her case. 11 U.S.C. § 727(d).
Debts that remain after a Chapter 7 discharge
Generally speaking, in a Chapter 7 proceeding, the following debts are not discharged:
- Debts or creditors not listed on the schedules filed at the outset of the case
- Most student loans, unless repayment would cause the debtor and his or her dependents undue hardship
- Recent federal, state and local taxes
- Child support and spousal maintenance (alimony)
- Government-imposed restitution, fines and penalties
- Court fees
- Debts resulting from driving while intoxicated
- Debts not dischargeable in a previous bankruptcy because of the debtor's fraud
11 U.S.C. § 523
A note about student loans
Educational loans guaranteed by the United States government are generally not discharged by a Chapter 7 bankruptcy. Student loans may be dischargeable, however, if the court finds that paying off the loan will impose an undue hardship on the debtor and his or her dependents. In order to qualify for a hardship discharge of a student loan, the debtor must demonstrate that he or she cannot make payments at the time the bankruptcy is filed and will not be able to make payments in the future. The debtor must apply before the discharge of the debtor's other debts is granted. Application for a hardship discharge is not included in the standard bankruptcy fees, and must be paid for after the case is filed.
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts often apply a three-part test to determine eligibility:
The Bankruptcy Code does not specifically define the requirements for granting a hardship discharge of a student loan. Courts often apply a three-part test to determine eligibility:
- Income - if the debtor is forced to pay off the student loan, the debtor will not be able to maintain a minimum standard of living for himself or herself and his or her dependents
- Duration - the financial circumstances that satisfy the income test in (1) will continue for a significant portion of the repayment period
- Good faith -the debtor must have made a good-faith effort to repay the loan prior to the bankruptcy
Additional Non-Dischargeable Debts
In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:
In addition, the following debts are not discharged if the creditor objects during the case and proves that the debt fits one of these categories:
- Debts from fraud, including certain debts for luxury goods or services incurred within 90 days before filing and certain cash advances taken within 70 days after filing
- Debts from willful and malicious acts
- Debts from embezzlement, larceny or breach of fiduciary duty
- Debts from a divorce settlement agreement or court decree, if the debtor has the ability to pay and the detriment to the recipient would be greater than the benefit to the debtor
Speak to a bankruptcy lawyer
If you have questions about which debts will be affected by a bankruptcy discharge, it is important to seek the advice and counsel of an experienced bankruptcy attorney at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California assisting those in need in Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California .
EXEMPT VS. NON-EXEMPT PROPERTY UNDER CHAPTER 7
In a Chapter 7 liquidation case, the debtor must relinquish certain property to the bankruptcy trustee so that he or she can sell the property and use the proceeds to pay off debts. Property of the bankruptcy estate is broadly defined in the Bankruptcy Code. 11 U.S.C. § 541. The bankruptcy estate is technically the legal owner of all of the debtor's property and consists of all legal and equitable interests that the debtor has in property at the initiation of the bankruptcy case. Income that the debtor earns after the date of the petition is not included in the bankruptcy estate. Debtors, whether they are businesses or individuals, are often justifiably concerned about what property they will be allowed to keep and what they must give up. A bankruptcy lawyer at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, can answer these and other questions, allay fears and keep the process moving forward as painlessly as possible.
Non-exempt property
Items that the debtor usually must forfeit include:
- Expensive musical instruments, unless the debtor is a professional musician
- Collections of stamps, coins and other valuable items
- Family heirlooms
- Cash, bank accounts, stocks, bonds and other investments
- A second car or truck
- A second home or vacation home
Exempt property
A debtor must file a schedule of exempt property with the court. Exempt property is property that the debtor can protect from liquidation. The Bankruptcy Code allows each state to adopt its own exemption laws, which the debtor can select instead of the federal exemptions. It is important to consult with an attorney who can explain the exemptions available under your state's laws and how they compare to the available federal exemptions.
Exempt property typically includes:
Exempt property typically includes:
- Motor vehicles, up to a certain value
- Reasonably necessary clothing
- Reasonably necessary household goods and furnishings
- Household appliances
- Jewelry, up to a certain value
- Pensions
- A portion of the equity in the debtor's home
- Tools of the debtor's trade or profession, up to a certain value
- A portion of unpaid but earned wages
- Public benefits - including public assistance (welfare), social security and unemployment compensation - accumulated in a bank account
- Damages awarded for personal injury
Speak to a bankruptcy lawyer
If you have questions about what property you will be allowed to retain if you file for bankruptcy under Chapter 7 of the Bankruptcy Code, it is prudent to seek the counsel of an experienced and knowledgeable bankruptcy attorney. Contact the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, today to schedule a consultation.
ALTERNATIVES TO CHAPTER 7 BANKRUPTCY
The term "workout" is used to describe a non-bankruptcy negotiated modification of debt. More simply stated, a workout is an out-of-court agreement between a debtor and his or her creditors for repayment of the debts between them, which is negotiated without all the procedural complications - and perhaps the stigma - of the bankruptcy process. A lawyer at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, who is experienced in bankruptcy and debtor-creditor law, can advise both debtors and creditors in Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California about whether a non-bankruptcy workout is their best course of action.
Why choose a workout?
There are a variety of reasons why a debtor might prefer a workout to bankruptcy. By entering into a voluntary agreement with creditors, the debtor avoids the stigma that attaches to bankruptcy but achieves the same results - discharge from all or a portion of his or her debts. In fact, a workout discharge can be even broader than a bankruptcy discharge. In addition, a workout discharge does not affect the debtor's rights to file a future bankruptcy, whereas certain types of bankruptcy discharges do. The main advantage of a workout is that both the debtor and the participating creditors voluntarily enter into it. In a workout, unlike bankruptcy, the majority of creditors cannot cram down concessions on dissenting creditors.
Non-bankruptcy alternatives
Compositions and extensions - A "composition" is a contract between the debtor and two or more creditors in which the creditors agree to take a partial payment in full satisfaction of their claims. An "extension" is a contract between the debtor and two or more creditors in which the creditors agree to extend the time for payment of their claims. An agreement may be both a composition and an extension; in other words, an agreement to accept less money over a longer period of time.
There is no requirement that all of the debtor's creditors agree to a composition or extension, but most of them must voluntarily support it for it to work. Creditors that do not agree to the workout are not affected by it and remain entitled to pursue other remedies to collect the debts owed to them. Although they can theoretically proceed to recover the full amount due, they forfeit the right to benefit automatically from whatever partial payment the composition would have allowed had they taken part.
Assignment for the benefit of creditors - An assignment may be a simpler and cheaper alternative to bankruptcy for a small business that wishes to be liquidated. The debtor assigns all nonexempt property to an assignee who acts as a fiduciary for the benefit of creditors. The assignee liquidates the assets and distributes the proceeds pro rata among creditors who have filed claims with the assignee. An assignment is voluntary, but all creditors must accept it.
There is no requirement that all of the debtor's creditors agree to a composition or extension, but most of them must voluntarily support it for it to work. Creditors that do not agree to the workout are not affected by it and remain entitled to pursue other remedies to collect the debts owed to them. Although they can theoretically proceed to recover the full amount due, they forfeit the right to benefit automatically from whatever partial payment the composition would have allowed had they taken part.
Assignment for the benefit of creditors - An assignment may be a simpler and cheaper alternative to bankruptcy for a small business that wishes to be liquidated. The debtor assigns all nonexempt property to an assignee who acts as a fiduciary for the benefit of creditors. The assignee liquidates the assets and distributes the proceeds pro rata among creditors who have filed claims with the assignee. An assignment is voluntary, but all creditors must accept it.
Bankruptcy alternatives
Chapter 11 - Filing for bankruptcy under Chapter 11 may be an option for debtors such as corporations, sole proprietorships and partnerships that are engaged in business. These debtors may wish to stay in business and avoid liquidation. Under Chapter 11, the debtor can have debts reduced or have the time for repayment extended.
Chapter 13 - Chapter 13 may be an option for individual debtors with regular income. Chapter 13 allows individual debtors to save their homes from foreclosure by coming up with a payment plan for past due payments. Sole proprietorships may also be eligible to file for Chapter 13.
Chapter 13 - Chapter 13 may be an option for individual debtors with regular income. Chapter 13 allows individual debtors to save their homes from foreclosure by coming up with a payment plan for past due payments. Sole proprietorships may also be eligible to file for Chapter 13.
Speak to a bankruptcy lawyer
Non-bankruptcy alternatives such as compositions and extensions have several benefits. However, in some circumstances, a debtor is afforded greater protection by a formal bankruptcy, and attempting a workout may just prolong the financial agony and delay the inevitable. An attorney who has experience in bankruptcy and debtor-creditor law at the Bankruptcy Law Offices of Stephen Johnson in Auburn, California, can help both debtors and creditors around Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California determine whether a workout is the best option for debt repayment, or whether bankruptcy is the better choice in their particular circumstances. Call today to schedule a consultation.
CHAPTER 7 RESOURCE LINKS
U.S. Bankruptcy Courts
A brief overview of the structure and function of bankruptcy courts.
Bankruptcy Basics: Chapter 7
Basic overview of liquidation under Chapter 7 of the Bankruptcy Code.
Bankruptcy: An Overview
A general overview of the topic of bankruptcy, along with state and federal materials, from Cornell University.
U.S. Bankruptcy Courts by State
Links to U.S. Bankruptcy Court sites.
Official Bankruptcy Forms
From the Administrative Office of the U.S. Courts.
A brief overview of the structure and function of bankruptcy courts.
Bankruptcy Basics: Chapter 7
Basic overview of liquidation under Chapter 7 of the Bankruptcy Code.
Bankruptcy: An Overview
A general overview of the topic of bankruptcy, along with state and federal materials, from Cornell University.
U.S. Bankruptcy Courts by State
Links to U.S. Bankruptcy Court sites.
Official Bankruptcy Forms
From the Administrative Office of the U.S. Courts.
Bankruptcy Rules
Links to official Bankruptcy Rules.
Experian
Features consumer information about credit reports, establishing credit, risk scores and more.
Trans Union LLC
Features consumer FAQs on credit reports.
National Foundation for Credit Counseling
Features credit facts, budget calculators and more.
Links to official Bankruptcy Rules.
Experian
Features consumer information about credit reports, establishing credit, risk scores and more.
Trans Union LLC
Features consumer FAQs on credit reports.
National Foundation for Credit Counseling
Features credit facts, budget calculators and more.
Contact a Lawyer Today
For a free consultation with the Bankruptcy Law Offices of Stephen Johnson in Auburn, including Lincoln, Rocklin, Roseville, Sacramento, Redding, Chico, Colfax, Truckee, Nevada, Yolo, Shasta, Tehama, and Amador, California. Call (530) 823-3655, or contact us online.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
We are a debt relief agency. We help people file for bankruptcy relief under the Bankruptcy Code.
DISCLAIMER: This site and any information contained herein are intended for informational purposes only and should not be construed as legal advice. Seek competent legal counsel for advice on any legal matter.
There are several companies available that promise to take over all of your consumer debt and negotiate directly with your creditors in your behalf. Some of these business are "non-profit" agencies but most of them are private businesses. They typically promise to reduce your interest rate and lower the amount of the actual debt.
Pros:
- They can provide immediate relief from the pressure of creditor harassment
- They can come up with a plan that does actually reduce the amount you owe.
Cons:
- Most of them work for and are funded by the credit card companies
- They are limited as to the total reduction of the accounts
- The final payment you are required to make on these debts goes through their office and is usually not much of a reduction over what you would normally pay.
- They charge a fee for their services which can be substantial in some cases.
- The payment plans often extend over several years.
- The impact on your credit is usually insignificant and will delay your "credit recovery" in most cases rather than expedite it.
Negotiate Directly with your Creditors
- Typically a credit card company will negotiate the balance of an account down to 50% (or even less) if they feel that ultimate payment by you is in doubt.
- In most cases the more delinquent you are the more willing they are to compromise the debt.
- The negotiations can be difficult because these are professional debt collectors you are dealing with.
- You can handle these negotiations yourself or retain a professional to represent you which requires your written authorization.
- Most compromises that are agreed upon require a cash payment in full to the creditor upon completion of the agreement.
Don't Pay Your Creditors (Ignore them)
- Creditors will typically try to collect the debt as long as they can contact you by phone, letter, or in person. This will go on for at least 10 years, often longer.
- Talking with them to "explain" your situation is a waste of time in the vast majority of situations. This sends the message that you care about the debt which encourages them in their collection efforts and often results in escalation of collection activity.
- The creditor may sue you over the debt which will result in a judgment against you.
- If your plan is to try to avoid these creditors as long as you can then you would probably want to take steps to make yourself "judgment proof" if possible.
- It is advisable to seek counsel with an attorney if this is the plan of action you plan on pursuing.
Borrow Money from your Retirement Account or from Friends or Relative
- This is usually inadvisable and can greatly compound your debt problems. Often there are unexpected tax consequences.
- Be sure you have thoroughly explored all other alternative and consulted with an attorney before you take this kind of a step.
Refinance your property or take out a 2nd mortgage.
- "Usually not advisable. (See comments above)
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Address: P.O. Box 244, Auburn, CA 95604
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Address: P.O. Box 244, Auburn, CA 95604
Address: P.O. Box 244, Auburn, CA 95604
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